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February 10, 2016

The Benefits of Saving During Tax Time! (Part Two)

As mentioned in part one of this series, using your tax refund wisely by saving at least a portion can make a truly positive impact on your financial life! After understanding the benefits of saving during tax time, it is important to also review the various mechanisms that will help you to do so. If you choose not to pay down a portion of your high interest debt, there are a variety of ways for you to save at least a portion of your tax refund. Luckily, the 8888 tax form will simplify this process for you!

What is the 8888 tax form? When using the 8888 tax form, you are able to direct part of your tax refund into one or more pre-approved accounts. This allows you to move part of your refund into a desired saving instrument.You are able to choose multiple accounts, which gives you the opportunity to make your tax refund work for you! Using this tax form also allows you to make the decision ahead of time to save; this can reduce the temptation to spend your refund once you have it in hand.

How do I use the 8888 tax form? This form is used during the tax filing process, so it will be important for you to plan ahead when filing your taxes. If you are filing online, be sure to research how you include this form into the filing process. If you are using a VITA site, or other form of tax prep assistance, be sure to let them know that you are interested in using this form to split your refund!

What savings mechanisms will this form allow me to use? When using the 8888 tax form, you have the ability to split your refund into more than one account. These accounts include the following savings mechanisms:

Purchase of a Series I Savings Bond When using the 8888 tax form, you are able to purchase up to $5,000 worth of Series I Savings Bonds! You must purchase these bongs in $50 increments, but they are a great way to save if you are interested in a shorter term investment. Series I Savings bonds also make a great gift, and can help promote a savings based approach to finances.

Deposit into Checking or Savings Account When using the 8888 Tax form, you have the flexibility to split a portion of your refund into your checking account, as well as into a savings account. If you are considering starting an emergency fund, a savings account is the perfect mechanism for you! By splitting a portion of your funds into a highly liquid account, such as a savings account, you will be able to access the money in the event of illness or emergency!

Certificate of Deposit or CD. A Certificate of Deposit is a great way to split your funds if you are interested in a shorter term investment, with a little bit more of an investment approach. A CD is still relatively liquid – meaning that you can access the funds if you need them – though it is a “time deposit,” account, meaning that a pre-determined amount of time has to pass before you can access the funds. The longer you let the money sit in the CD, the higher the reward. That being said, if you access the money prior to the pre-determined time, you will have to pay a penalty and the benefit will not be as great.

Deposit into an IRA or myRA account As discussed in the previous post, splitting a portion of your refund into an IRA or myRA is a great way to jump start your retirement savings!

A partnership between America Saves and SaveYourRefund has created an opportunity for you to be entered to win just by using the 8888 Tax form! To find out more about this opportunity, read here!

About Amanda Woods

Amanda Woods M.Ed. is currently the Healthy Finances Program Specialist for Family and Consumer Sciences at Ohio State University Extension. Amanda is passionate about community engagement and outreach, and enjoys being in a role that helps facilitate research based education throughout the many wonderful counties in Ohio. She believes education is a valuable and indispensable tool, especially when used to promote community health and well-being.

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